One of those bars, SF Badlands, has been the site of weekly pickets and has been boycotted by numerous gay and community groups since San Francisco's Human Rights Commission found in April that it had discriminated against African Americans and women in hiring and in admitting patrons.

"We received complaints ... investigated the complaints and were not able to substantiate the complaints. So that is the conclusion of the investigation, " Carr said.

Had the state agency found Natali discriminated against patrons, he could have faced the loss of his liquor licenses at Badlands and at Detour, his other bar.

Natali's attorney said Thursday's findings exonerate his client.

"I think (the city investigation) was flawed. I think they relied on flimsy evidence and saw a ghost where none existed," said R. Stephen Goldstein.

A representative of the commission could not be reached for comment.

The state investigation started after Natali applied for a liquor license for a third bar, the Pendulum, which is across the street from Badlands and is patronized mostly by African Americans. Several people protested that application and complained of discrimination at Natali's other bars.

The finding means Natali can have a license for the Pendulum, and the department put three conditions on that license: that he not discriminate, that his employees complete a discrimination training course and that he hang a sign by the door saying the business does not discriminate.

Those conditions may be moot, however, as Natali has decided to sell the Pendulum, according to Goldstein. Natali's attorney said no documents have been signed on the sale, but he has reached an agreement with a buyer.

Representatives from the group And Castro for All, which is leading the boycott and picketing, said they hoped the new owners would comply with the conditions.

"We continue as always to call on the ABC to revoke Mr. Natali's license for the Badlands," said Paul Mooney, a spokesman for the group.

Natali has agreed to meet with those who have accused him of discrimination at Badlands, and former Mayor Willie Brown and attorney Scott Emblidge will mediate that dispute.